Coronavirus: Virgin Australia on a new path to state rescue

The Queensland government has moved to ignite a rescue bid for Virgin Australia, offering $200m towards a bailout it believes other states will join.

Grounded Virgin Australia aircraft parked at Brisbane Airport. Picture: AAP

The Queensland government has moved to ignite a rescue bid for Virgin Australia, offering $200m towards a bailout in the belief it will entice other states to come ­forward to back the nation’s second airline.

The $200m — offered on the condition Virgin maintains its Queensland headquarters where 5500 people are employed — is well short of the $1.4bn sought by the airline but is designed to increase pressure on the Morrison government to reverse its refusal to provide an assistance package.

While the Palaszczuk government believes other states will pitch in to ensure a competitive aviation sector, State Development Minister Cameron Dick challenged the federal government to step up and back Virgin, which has suspended trading in its shares pending negotiations about its financial future.

Mr Dick said the country needed two airlines and “all governments needed to work together to ensure that remained the case”.

Scott Morrison on Thursday challenged industry super funds to help Virgin navigate the corona­virus shutdown, even as the federal government announced a $165m plan to ensure a minimum network of domestic services continued to be offered by Qantas and Virgin.

The Prime Minister’s plea was rejected by former union leader and Gillard government minister Greg Combet, who is now the ­nation’s most powerful industry superannuation fund official.

Mr Combet, chairman of the $140bn IFM Investors and Industry Super Australia, said it was ­“important to understand that superannuation fund trustees have a duty to invest wisely and consider the appropriate returns for the risks involved”.

“Investing in a distressed airline in the middle of a global pandemic is extremely high-risk,’’ the former Labor government minister and ACTU boss told The Weekend Australian.

He said trustees of industry super funds had a legal obligation to invest in the long-term interests of members.

Mr Combet said Virgin’s future required the government to carefully consider the national interest.

“I don’t think you can allow Qantas to have a domestic aviation monopoly,” he said. “It would be naive to think a new ­operator could come in and rapidly scale up to a 40-50 per cent market share. The barriers to entry will be profound.

“So the maintenance of two airlines is an issue that governments need to grapple with, and if they get the public policy settings right for the aviation sector in a two-­airline arrangement, that would provide private investors with greater confidence.”

The federal government has called on Virgin’s overseas shareholders — including Singapore Airlines, Etihad Airways, Nanshan, HNA Group and Richard Branson’s Virgin Group, which control 90 per cent of the airline — to step up.

The Queensland government offer is about 12 times what it paid to lure the airline to base itself in the state 20 years ago.

“We are prepared to contribute financially to a national bailout but only if the federal government steps up, the headquarters remain in Queensland, Virgin restructures its debt and shareholders and bond-holders do their bit,” Mr Dick said. In 2000, the Beattie Labor government paid $10m to entice the then Virgin Blue to make Brisbane its base, or about $16m in 2020 terms.

A senior Queensland government source said that if the federal government let Virgin go into administration, the state government would still be prepared to invest that $200m or more if needed, to support a new operator, so long as it was headquartered in Queensland. “Virgin is one of the Queensland family jewels — we will roll out the bazookas to save them,” the source said.

The comments came as the Courier-Mail reported the Chinese government, through China Southern Airlines, China East Airlines and Air China, had held talks about a Virgin buyout, but no formal offer had been lodged.

Deputy Prime Minister ­Michael McCormack on Friday again talked down a government bailout for Virgin, saying the government would prefer a market solution. “We remember back in 2013-14 when Qantas was struggling and they, too, wanted some assistance,” Mr McCormack said.

“Fortunately they were able to re-energise through good management and get their books back into the black and very healthy. We want to see that situation with Virgin too.”

Speculation Virgin could be lured to Victoria for a better deal and targeted tax incentives was dismissed by the Queensland government source.

“It would be nonsensical to try to save money by moving south to a place where commercial leasing costs are higher, residential housing costs more and congestion is worse for workers,” the source said. “But we do expect Victoria and other states should contribute to support a second national ­airline.”

A spokesman for Victorian Premier Daniel Andrews would not confirm if any approaches had been made to the airline.

A Virgin Australia spokesman would not comment on the Queensland offer.